RBI Eyes Licensing for Fintech Business Correspondents Amid Fraud Fears
Overview
The Reserve Bank of India is evaluating a licensing framework for corporate business correspondents. This move aims to bring unregulated fintech players directly under RBI oversight, addressing concerns over fraud, money laundering, and misused transaction limits that plague the business correspondent ecosystem. The proposed regime seeks to standardize operations and bolster financial inclusion efforts.
RBI Proposes Licensing for Corporate Business Correspondents
The Reserve Bank of India (RBI) is set to consider a new licensing regime for corporate business correspondent (BC) channels, a significant step that would place many fintech firms operating in this space under direct regulatory scrutiny. This potential overhaul follows the central bank's increasing unease with the current state of the BC ecosystem.
Ecosystem Stress Points
Regulators have flagged issues such as agents routinely exceeding the ₹25,000 monthly limit for direct money transfers (DMT) and the unauthorized use of bank payout application programming interfaces (APIs). These practices raise alarms regarding potential fraud and money laundering activities. Currently, fintech companies acting as corporate BCs are not directly regulated by the RBI; their partner banks bear responsibility for their actions.
Path to Direct Regulation
Industry participants have previously lobbied for greater clarity and authorization, suggesting corporate BCs be treated as regulated entities, akin to prepaid payment instruments (PPIs) and payment aggregators (PAs). Such a framework could allow these entities to expand their service offerings beyond what their sponsor banks dictate, fostering greater innovation. With over 2.5 million agents facilitating basic banking services, the BC network is a cornerstone of India's financial inclusion drive.
Financial Inclusion Engine at Risk
Business correspondents are vital for extending banking services to remote and unbanked areas, handling significant transaction volumes and deposits. During 2023-24, BCs facilitated the opening of 429 million basic savings bank deposit accounts (BSBDAs), with deposits totaling ₹1.53 trillion, surpassing figures from bank branches. Introducing a licensing regime aims to bring much-needed standardization and harmony to this critical channel.
